Tax and Budget

In the past several months, Pennsylvania’s legislature has shown renewed interest in enacting a severance tax on natural gas extraction as part of the state’s overdue revenue package to fund the state budget. In that context, the natural gas industry has maintained a steady drumbeat of communications claiming that Pennsylvania already has a tax on gas extraction because of its per well impact fee which does not rise with the volume or value of gas drilled. The industry and its allies also continue to claim that Pennsylvania’s impact fee amounts to a tax that is higher (relative to the volume or value of gas produced) than the severance taxes in many other states.

The budget plan released today by a group of Republican House members fails in the most important task before our state today: to resolve the long-term structural imbalance between expenditures and revenues. Even if every fund transfer proposed by the Republican back-benchers today were Constitutional and legal, and even if they had no impact on the commitments made by the General Assembly to provide funding for public purposes, this one-time transfer will provide almost no recurring revenues to support the state’s on-going commitments. Even if this proposal made sense, it leave us facing a deep deficit next year — one that would grow deeper every subsequent year.

Republican members of the Pennsylvania House of Representatives, with the support of outside advocates, are moving to announce plan to borrow massively, perhaps up to more than $2 billion, from many of the 100 or so special funds that, along with the General Fund, are part of the state budget. Their justification for doing so is that, at the end of each year, many of these funds have a surplus. So it seems easy enough to shift those surpluses – money they are quick to say is “just sitting there not doing anything” – into the General Fund.

As work on the 2017-18 budget continues, a bipartisan group of state legislators have become more vocal in their support of a severance tax on natural gas drillers. In response, the Marcellus Shale Coalition is putting on the full-court press.

In its recent letter to Speaker Mike Turzai, the Marcellus Shale Coalition points, in paragraph three, to the effective tax rate (ETR) on production as a key indicator of whether Pennsylvania should enact a severance tax in addition to the per-well impact fee we already have.

As legislative leadership and Governor Wolf look to wrap up the revenue portion of the 2017-18 state budget, the remaining negotiations is at least focused on the right subject: finding adequate and sustainable long-term revenues. Unfortunately, rather than work for new recurring revenues, Republican Leadership continues on the irresponsible path it has taken for most of this decade.

Gov. Tom Wolf presented his 2017-18 State Budget Proposal on February 7, 2017. The Pennsylvania Budget and Policy Center will be posting analysis, infographics and related documents on this page as they become available. Check back often for the latest updates.

In his budget address, Governor Wolf observed that Pennsylvania faces a choice of two paths. Taking one path would require us to deal with the reality of our structural deficit and raise revenues to close it. It would enable government to continue to meet its responsibilities to educate our children, serve those who need our help, protect the environment and encourage economic growth. Taking the other path would require us to accept devastating cuts to education and health and human services.